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OBR warns no-deal Brexit will hammer sectors so far spared hit from pandemic and wipe 2% off UK output

Time 10 months ago

A no-deal Brexit could wipe two per cent off UK output the Office of Budget Responsibility (OBR) has warned, hammering sectors that have so far proved resilient to the coronavirus pandemic.

The OBR told MPs that failure to agree an EU withdrawal deal would impact firms that are helping the economy through the coronavirus crisis – such as manufacturers, financial services and agriculture.

It would lead to further job losses and an additional impact to UK activity at a time when the economy is already facing the biggest plunge in output for more than 300 years, it said.


In a hearing with the Treasury Select Committee, the OBR said a no-deal Brexit would be at least as damaging as the long-term impact of Covid-19 on the economy.

It added that the economic impact would be ‘widespread’, meaning few sectors are spared being dealt a blow by the pandemic on one side and a no-deal Brexit on the other.

OBR chair Richard Hughes said: ‘Covid affects the non-tradeable sectors of the economy, whereas Brexit affects the tradeable goods sectors.’

He added: ‘Were we to leave the EU without a deal, these are the sectors that would be hit hardest by the fact they lose access to a very important market to them, which is the EU.’


The comments come after the OBR warned in its economic and fiscal outlook alongside last week’s spending review that a no-deal Brexit could wipe another two per cent off the economy next year and lead to a long-term decline in gross domestic product (GDP).

In the hearing, OBR member Sir Charlie Bean said that the ‘Brexit shock’ will require ‘further restructuring of the British economy’, leading to job losses and a temporary rise in unemployment before new jobs are created in newly expanding industries.


The OBR has predicted that the economy will suffer a four per cent drop in output over the long-term from Brexit, even if the UK and EU sign a free trade deal.

But it said if the UK is set to revert to World Trade Organisation terms it would reduce GDP by a further two per cent in 2021, on top of the effects of coronavirus.

The OBR forecasts that unemployment will peak at 8.3 per cent in the third quarter of 2021 if there is no agreement – 0.9 per cent higher than in its central forecast for the quarter.

It also forecasts GDP plummeting by 11.3 per cent in 2020 – the largest annual fall since 1709, the year of the Great Frost – and government borrowing to sore to a peacetime high of £394bn – the equivalent of 19 per cent of GDP in 2020-21.

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The UK car industry is one sector that has proved resilient during a turbulent year, and the OBR warnings come after the Society of Manufacturers and Traders (SMMT) have made repeated concerns about the impact of ‘no-deal’ on the car industry.

Last month, the body made a last-chance plea for a zero-tariff and zero-quota trade deal with the EU. Its latest survey revealed that the cost of preparing for Brexit has cost the automotive sector more than £735m.

Earlier it had warned the sector would suffer a £55.4bn loss by 2025 under WTO tariffs, and no-deal tariffs will add £2,800 to the cost of making and buying an electric vehicle.

James Batchelor's avatar

James – or Batch as he’s known – started at Car Dealer in 2010, first as the work experience boy, eventually becoming editor in 2013. He worked for Auto Express as editor-at-large and was the face of Carbuyer’s YouTube reviews. In 2020, he went freelance and now writes for a number of national titles and contributes regularly to Car Dealer.

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